Irish house price crash unlikely, say economists

BANK OF ENGLAND warnings of a British house price crash should not cause too much concern among Irish borrowers, according to leading economists.

Bank of England governor Mervyn King said British house prices were too high to be sustainable and signs of a slowdown in the housing market were beginning to appear.

Mr King said first-time buyers and those considering trading up should "consider carefully the possible future paths of house prices and interest rates". Britain has raised rates by 1% since November and implemented two 0.25% rises over the past two months.

But Ulster Bank chief economist Pat McArdle said Mr King's comments were aimed at easing house price inflation in Britain and that the Irish housing market was less exposed to the risk of falling prices.

Mr McArdle said the surge in British house prices owed less to fundamentals of supply and demand than the Irish situation. Ireland has witnessed a 50% increase in employment levels since the housing market began to pick up in the 1990s, said Mr McArdle. This coincided with higher salaries, lower tax rates and lower interest rates, to produce an environment of higher absolute house prices, he said.

He added that the main risks to the Irish housing market were sharp increases in interest rates or unemployment, or a collapse in confidence, none of which was likely in the near term.

Mr McArdle said a price collapse in Britain, although unlikely, could negatively affect confidence here.

Goodbody Stockbrokers' head of research Colin Hunt said the Bank of England was concerned about house prices and British interest rates would continue to rise until the market gradually slowed down.

But Ireland's position of having little or no influence on eurozone policy-makers meant developments in the Irish market would have no effect on interest rates.